What does a PIK toggle note allow the issuer to do?

A PIK (Payment-In-Kind) toggle note provides the issuer with the flexibility to decide how to pay interest — either in cash or by deferring it, typically by adding the interest amount to the principal owed. This feature allows issuers to manage cash flow more effectively, especially during times when cash is tight, since they can choose to conserve cash by allowing interest to accrue rather than making immediate payments.

This payment mechanism is beneficial for companies that may be in a startup phase or facing turbulent financial conditions, as it provides them with the leeway to prioritize their cash for operational needs rather than servicing debt. The ability to toggle between cash payments and accrued payments adds strategic financial management options for the issuer.